I have analyzed how dividend stocks and broad stock market performed from 1931 to 2025. Over the 94 years period, dividend stocks, with a 11.4% annual return, have meaningfully outperformed the stock market, with a 10.2% annual return.
I used Fama-French dataset, specifically comparing the "High Dividend Yield" portfolio (top 30% of stocks by yield) against the "Market" portfolio (a proxy for the S&P 500).
Overall I think it’s worthwhile to add dividend stocks into a portfolio, because its overall long term performance is at least comparable or, strictly speaking, somewhat better than the overall market. Furthermore, dividend stocks worked best when the overall market struggled in periods like 1970s and 2000s. So during these periods, if you used S&P 500 as your only growth engine, your portfolio would struggle. Your return would be meaningfully better if you had more exposure to dividend stocks.
Performance by Distinctive Time Spans
1. The Depression & Recovery (1931–1945)
High Dividend Return: +13.2% Annualized
S&P 500 Return: +8.6% Annualized
Dividend stocks proved to be more resilient than the broad stock market during the period, while high growth stocks crashed.
2. The Post-War Boom (1946–1969)
High Dividend Return: +13.8% Annualized
S&P 500 Return: +12.6% Annualized
Both dividend stocks and broad stock market did pretty well.
3. The Stagflation Era (1970–1981)
High Dividend Return: +11.9% Annualized
S&P 500 Return: +5.8% Annualized
S&P 500 stagnated. Dividend stocks shined. It seemed dividend stocks performed especially well during the periods when the stock market performed sideways. Another example was the “lost decade” from 2000 to 2009.
4. The Great Moderation & Tech Bubble (1982–1999)
High Dividend Return: +16.1% Annualized
S&P 500 Return: +18.5% Annualized
This was the period when the tech stocks did especially well. I’m surprised to see the dividend stocks’ return of 16.1% is not bad at all.
5. The Lost Decade (2000–2009)
High Dividend Return: +6.8% Annualized
S&P 500 Return: -0.9% Annualized
This was the period when broad stock market struggled and dividend stocks shined.
6. The Era of Cheap Money (2010–2020)
High Dividend Return: +10.5% Annualized
S&P 500 Return: +13.9% Annualized
Tech stocks, especially “Magic Seven” or whatever large tech stocks were called during the period, did wonderfully.
7. Post-Pandemic & AI Boom (2021–Early 2025)
High Dividend Return: +10.1% Annualized
S&P 500 Return: +13.2% Annualized
The rise of AI gave S&P 500 a boost while the dividend stocks were negatively affected by high interest rates, I think.